THE FUTURE OF THE ACCOUNTANCY PROFESSION
Remarks by Graham Ward, CBE, MA, FCA
President, International Federation of Accountants
Institute of Chartered Accountants of Sri Lanka – President’s Induction
Colombo, Sri Lanka – January 11, 2006
Ladies and gentlemen, I am honored to be here with you today. This is my first visit
to Sri Lanka as President of the International Federation of Accountants and I am
heartened by the warm welcome which my wife, Ann, and I have received.
I would like to thank your outgoing President, Mr. Indrajith Fernando and your Chief
Executive, Mr. Lakshman Perera, for inviting me to speak to you this evening. They
have been kind enough to show us your beautiful country. I am encouraged by the
signs of economic recovery and have the greatest respect for the Sri Lankan people
who have shown such fortitude and courage in a time of great crisis over the past
year.
Mr. Fernando has been President of your Institute during a very challenging time,
and I commend him for his strong leadership. Although he is stepping down as your
President, I look forward to continuing to work with Mr. Fernando as he was recently
appointed to serve on IFAC’s Developing Nations Committee, where he will be a vital
part of IFAC’s work in contributing to economic growth and stability in emerging
economies around the world.
I also would like to congratulate Mr. Yohan Perera on his appointment as your
Institute’s new President. Mr. Perera assumes the presidency of your Institute at a
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time of great promise and renewed focus on the important role of professional
accountants both in Sri Lanka and internationally. I am confident that, under his
leadership, your Institute will continue to promote transparency and good
governance. I look forward to working with Mr. Perera in the months ahead and wish
him the very best in his term of office.
We very much recognize that the recovery efforts from the tsunami are still well
underway and that our profession has a key role to play in this. It is also important to
acknowledge that sound progress has been made. The World Bank reported late last
year that some 55,000 homes had been rebuilt or were in the process of being
rebuilt. Oxfam International said in December that, one year following the tsunami,
60 percent of those who had lost jobs were back earning a living and this number is
expected to rise to 80 percent by the end of 2006. Although Sri Lanka’s gross
domestic product (GDP) fell immediately after the tsunami, the Asian Development
Bank has reported that the GDP is also bouncing back: it grew by 5.2 percent in
2005 and will increase by 5.8 percent in 2006 and by 5.9 percent in 2007, effectively
reversing the tsunami’s effects on Sri Lanka’s GDP.
Over the past year, the Institute of Chartered Accountants of Sri Lanka has
exemplified what we, as professional accountants and as business leaders and
decisions makers, can do to support the rebuilding efforts in a transparent and
accountable way, through, for example, ensuring that recovery funds are properly
managed, that effective governance controls are in place, and that public monies
benefit those most in need.
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In addition to setting a fine example here in Sri Lanka, your Institute has a long and
proud history of participation in and support of the international profession. As a
founding member of the International Federation of Accountants, your involvement is
essential to IFAC’s ongoing ability to protect the public interest and to fulfill its
mission, which I will state for you now:
“To serve the public interest, IFAC will continue to strengthen the worldwide
accountancy profession and contribute to the development of strong international
economies by establishing and promoting adherence to high-quality professional
standards, furthering the international convergence of such standards and speaking
out on public interest issues where the profession's expertise is most relevant.”
I have been asked to speak to you today about the future of the accountancy
profession. While our past success as a profession is a good foundation for the
future, predicting the future simply by looking at the past assumes that conditions
remain constant. That is like driving a car by looking only in the rear view mirror!
Conditions certainly are not remaining constant. The environment in which we work
has changed dramatically in the last few years and we are likely to see more
significant changes in the upcoming years. Our duty to the public interest is to look
clearly ahead, while ensuring that we do not forget the lessons of history. IFAC’s
mission is fundamental to the future of our profession because our profession will
have a future if and only if it serves, and is seen to serve, the public interest above
all else. This evening, I will consider what future the profession might have and what
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IFAC is doing to bring about a successful future. I invite you to think about three inter
related global trends:
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First, the nature of business relationships will change in line with the changing
balance of economic and, ultimately, geopolitical power between East and West, in
particular with the rise of major economic powers here in Asia, such as India and
China. We are already seeing the success and vibrancy of their economies. Both
these nations have big advantages – an enormous home market with few language
barriers, the ability to spread research and development costs, huge investment in
education and modern technology and mobile and educated workforces.
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Second, this shift will have a consequential effect on business and on
reporting performance. Eastern business relationships are predominantly
relationship-based, not transaction-based, and this is a major shift in perception for
the West. Western business men and women – from the European Union, the United
States and other nations – will need to look more closely at the development of
financial and non-financial reporting as the values, expectations and decision-making
criteria of society change.
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Third, the imperative that the developed world should be doing more to help
developing nations to benefit from globalization in a truly fair way will become a
primary focus of achieving world financial stability. Clearly, this objective is right for
its own sake – both morally and ethically – as we have seen with the enormous
outpouring of support and aid following the 2004 tsunami. In this effort, professional
accountants will contribute where our expertise is most valuable, by building an
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investment climate of trust and supporting both institutional strengthening and
organizational performance throughout the world.
I am not alone in believing these to be significant trends. They are also recognized
by business and government leaders, international standard-setters, regulators and
international development and funding agencies.
Our profession has historically been responsible for the spread of financial
knowledge and for a commitment to helping others around the world to develop the
capacity to succeed. The growth of the profession has mirrored the growth of the
capital markets and clearly – in business, practice and the public sector – we
accountants are recognized as being intimately tied to the development and
maintenance of sound financial infrastructures and trustworthy, sustainable
institutions. There is no doubt that a strong accountancy profession is fundamental to
the economic success of every nation. The issues are common to countries
throughout the globe, so it is right that we address them globally, as we do, through
the International Federation of Accountants, as well as by acting locally, through
national institutes such as the ICASL.
Our response is important not only for the future of the accountancy profession but
also as part of our responsibility to the future of the societies in which we live and
work. Ours is a profession of people. What unites us is not simply shared technical
expertise, but rather a shared commitment of people: accountants, to a common set
of values, common objectives and a mission to serve the public interest.
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Yes, we do need to address competitive pressures, for example, by maintaining our
competency through Continuing Professional Development, by demonstrating our
commitment to quality and transparency, by delivering relevant and needed services
and by being market oriented as professionals. But even more we need to stay true
to our core purpose of serving the public interest. Preparers of accounts must
safeguard the integrity of financial statements. Practicing firms must meet both the
challenges of running a business, thereby attracting high quality people into the
profession, and safeguarding the quality, integrity and value of the audit.
Accountants in the public sector must safeguard integrity in governments’
relationships with their citizens.
Our response to the trends I have talked about rests on three things:

Making sure that we keep the public interest at the forefront of our activities –
whatever sector we work in;

Emphasizing the importance of ethics in all that we do – and promoting ethics
throughout the whole financial reporting chain; and

Supporting organizational performance by thinking globally – not just about
our own businesses, but also in terms of global standards that promote
transparent and useful information for decision making.
Public interest
So first, let us consider the public interest.
The work and high standing of institutes such as the Institute of Chartered
Accountants of Sri Lanka are vital to the future reputation and effectiveness of
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professional accountants in industry, in public practice, in the public sector and in
academe.
Through our Member Body Compliance Program, part and parcel of the obligations
of membership, IFAC is able to demonstrate the extent of member bodies’ activities
to encourage and monitor quality performance by the profession. This program
shows that we are committed to transparency within the profession and to promoting
high standards on a global basis in the public interest. We are grateful to ICASL for
its participation in this program, knowing that you worked on it at a time of great
challenge. Your participation, as evidenced by the information you have provided
about your standard setting and regulatory framework and which is posted on the
IFAC website, is evidence of your commitment to quality and to serving the public
interest.
Today, we accept that it’s very important to involve a broad constituency in standard
setting in order to ensure that the views of those who use and rely upon those
standards are considered. This is necessary because standard setting is now fully a
public interest activity. Certainly, IFAC’s own reforms in standard-setting have been
designed to ensure that this is the case beyond all doubt, to ensure transparency
and so to build confidence in the process. We must work in cooperation with the
regulatory community, with whom we share common cause in achieving fair financial
reporting.
At the international level, last February an independent international Public Interest
Oversight Board was established to oversee IFAC’s standard-setting activities in the
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areas of auditing, ethics and education; and the Member Body Compliance Program.
The PIOB, which was established by IFAC in cooperation with international
regulators and institutions, is comprised of members nominated by international
regulators and other organizations. In addition, we have obtained the close
involvement of investors, regulators, preparers and others in our standard-setting
processes through, for example, the Consultative Advisory Groups for each of our
standard-setting boards.
We should never forget why we need high standards of financial reporting; that
transparency for and accountability to investors is key, guiding the actions of all in
the financial reporting supply chain in building an investment climate of trust.
Investors’ actions affect all citizens, through, for example, capital allocation to
business, and therefore, jobs and quality of life.
Reporting shifts
Recalling the East/West shift, relationship based business, rather than transactional
based business, poses its own issues. At present, financial statements report
transactions and the results of transactions. In future, companies will also have to
report on their relationships, probably through narrative reporting.
The International Accounting Standards Board, of which your Institute is also a
member, has begun a new project to consider a possible role in improving the quality
of the management commentary. Last October, it issued a discussion paper that
offers recommendations on how the IASB might promote the wider adoption of best
practice in the interests of investors and others who use financial reports. IFAC is
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encouraging its member bodies to review this discussion paper and to provide the
IASB with comments.
Accounting for sustainability is another area that will gather more impetus. It involves
recognizing the intangible costs and benefits of decisions as well as the tangible, for
example, how decisions taken today will affect future performance and outcomes.
Conventionally, we account in financial statements for the revenues and expenses
that fall to or on the organization. Accounting for sustainability involves seeking to
account for costs and benefits – including non-financial effects – that fall on other
members of society.
To encourage the involvement of the profession in this issue, IFAC has established a
Sustainability Experts Advisory Panel which serves in an advisory capacity to both
our Professional Accountants in Business Committee and the International Auditing
and Assurance Standards Board. The PAIB Committee plans to raise awareness of
the issue and to provide good practice guidance for professional accountants in
business in this area. As part of this process, it will be coordinating and encouraging
member body research and representation. In addition, IFAC is addressing
sustainability on a global level through its representation on the Global Reporting
Initiative.
Developing credible accounting measures on sustainability is, conceptually,
extremely difficult but must be tackled. Coupling this driver with the East/West shift,
will traditional accounting measures become the appendices to narrative reports, not
the main information for analysis and reaction?
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Ethics and the whole financial reporting chain
My second point focuses on ethics. Serving the public interest is grounded in our
professional ethics. That will not change.
Our profession is built upon and committed to sustainability and stability, consistency
and credibility, and independence and integrity. These are enduring values which are
the hallmarks of a profession. They must be upheld and enforced by professional
accountancy bodies if the public interest is to be well-served. And they should
underpin our future response to the global trends I mentioned.
All IFAC staff and volunteers embrace and promote the values we stand for –
integrity, transparency and expertise. These values are reflected in our strategic
plan, our professional standards and our decision-making processes as well as in
IFAC’s Code of Ethics for Professional Accountants, which is applicable to all
professional accountants in business, practice and government and upon which Sri
Lanka’s Code of Professional Conduct & Ethics is based. Last June, IFAC’s
International Ethics Standards Board for Accountants issued an updated Code of
Ethics which reinforces the five fundamental principles of professional ethics:
integrity, objectivity, professional competence and due care, confidentiality and
professional behavior. These are personal qualities that today’s and tomorrow’s
accountants must have.
In future it will become even more important for us to take up the challenge of
promoting the importance of ethics throughout the financial reporting supply chain.
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Because, as was highlighted in the IFAC-initiated independent report on Rebuilding
Public Confidence in Financial Reporting, prepared by a Task Force chaired by John
Crow, a former Governor of the Bank of Canada and a former Chairman of the
Central Bank Governors of the Group of Ten Countries, and published two years
ago: failure to recognize the primacy of integrity was a major contributor to the
financial scandals of recent years. A key recommendation of the report was that
effective corporate ethics codes need to be in place and actively monitored. So often
in the past, we have heard that finance directors have acted as the only conscience
of the board when, of course, without underestimating the importance of the finance
director, ethical behavior should be at the heart of the board and the company as a
whole.
So while one cannot over-emphasize that the tone for an organization needs to be
set at the top, there is a key role for all professional accountants in business to help
in practical ways to promote ethical values throughout an organization. Moreover, as
preparers of financial information, we are ideally placed to drive ethics through
financial reporting from the very start.
A 2004 report by IFAC’s Professional Accountants in Business (PAIB) Committee in
conjunction with the Chartered Institute of Management Accountants in the UK,
entitled Enterprise Governance – Getting the Balance Right, found that a virtuous
circle of integrity and ethics is fundamental, both to good governance and to
business growth. There must be no conflict between probity and profitability.
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Later this month, the PAIB Committee will issue an exposure draft of proposed
guidance to assist professional accountants in business to develop and implement a
corporate code of conduct within their organizations. Entitled Guidance for the
Development of a Code of Corporate Conduct, the guidance is designed to draw
greater attention to the need for corporate codes of conduct, to provide practical
guidance on the scope and implementation of such codes, and to support sound
corporate governance practices.
Professional accountants – whether within business entities or in the accounting
firms that audit them – play an important role in the financial reporting supply chain.
It is important, however, to keep in mind that accountancy firms are only one part of
that chain, which also includes analysts, lawyers, senior management and boards of
directors. It is for this reason that IFAC’s Board agreed to begin a new initiative on
enhancing the quality of the financial reporting supply chain. The project will identify
investor expectations and needs and include practical suggestions for
enhancements that the global accountancy profession can provide by direct action
and those where it will need to engage with others to create change. Among the
issues that will be considered in the new study are corporate management and
governance, regulatory developments, auditor independence and rotation, and the
expectations around the board’s and auditor’s responsibility for the detection of
fraud.
Organizational performance – thinking globally
My third point is on supporting organizational performance by thinking globally.
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We have a duty to our profession throughout the world, including both developed
and developing nations to deliver:

The enduring values I’ve talked about – our commitment to the public interest
and professional ethics;

The benefits of global standards, with accountancy as the international
language of business; and

Trust in the capital markets.
We are well-placed to act, bringing benefits now and for future generations.
Our profession is regarded as one of the main conduits to fighting financial
corruption. And it is no secret that many developing economies have a problem on
this front, often driven by those in developed nations who, for example, offer bribes
to gain advantage, but too often driven by poverty. For example, the
misappropriation of aid funds has been raised as part of last June’s G8 discussions.
So we need to build strong professions that can help to ensure that the right funds
are directed to the right places.
I commend the Institute for its work to ensure that tsunami relief funds are properly
and effectively managed and utilized. Through initiatives such as the ICASL Trust for
Services for Tsunami Projects and the development of the toolkit on Accounting &
Management Systems and Procedures for Tsunami Relief Projects, you have made
a significant contribution to the rebuilding effort by helping to ensure that appropriate
controls, transparency and accountability are in place.
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IFAC’s Developing Nations Committee, of which your outgoing President Mr.
Fernando is a new member, is working at an international level with organizations
such as the World Bank and the United Nations Conference on Trade and
Development, to build responsible accountancy professions in developing nations
and to support the development of the financial infrastructures within which our
profession will operate.
As a result of an extensive consultative process, the committee is preparing a
country-specific approach to supporting developing nations, helping both those
countries where there is no established profession and those that have only begun to
build the professional, financial and regulatory architecture necessary to support
economic growth.
In addition, to assist in the establishment and development of professional
accountancy bodies, last month the committee released new good practice guidance
on the roles and responsibilities of a professional body, education and examination,
and capacity development. This guidance addresses a range of situations, including
where the accountancy profession does not exist in a country, where the profession
exists and there is a desire to establish a professional accountancy body, and where
an existing professional body requires further development and enhancement. The
guide also includes suggested areas for priority action based on short-, medium- and
long-term goals and projects.
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In Conclusion
The future of our profession does rest on staying relevant, up to date and market
oriented. But most fundamentally, it depends on demonstrating professionalism,
acting in the public interest and not losing sight of our core purpose as custodians of
transparency and integrity in financial reporting. It needs to be focused on ethics as
the foundation of that purpose and acting and thinking globally, at a local level, to
fulfill that purpose.
These objectives are at the heart of IFAC’s work as well as the thought that: he who
influences the thought of his times influences the times that follow. Our profession
needs to be respected and influential today if we are to be so in the future.
If we commit to putting the public interest first and to living our profession’s values of
integrity, transparency and expertise, the future of the accountancy profession is
bright:
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Professional accountants in business will be recognized fully for the role they
play in creating wealth and contributing to strong governance and fair financial
reporting.
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Professional accountants in the public sector will be recognized fully for the
role they play in the sound, efficient and ethical operation of governments and in
protecting the rights of their citizens.
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Professional accountants in public practice will be recognized fully for the role
they play: as auditors, in facilitating fair, well informed capital markets; and as
professional advisors, in creating wealth.
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If we fail to commit to the public interest and to sound values, we will lose public
confidence and no longer have an accountancy profession that we would recognize
as such.
It is a stark choice. I believe that we will make the right choice, together. Working
together as a global profession we will live those values of integrity, transparency
and expertise. Working together with regulators, investors and other stakeholders,
we will command justified public confidence. Working together, developed and
developing nations, we will achieve sound financial infrastructures throughout the
world, fight poverty and help nations such as Sri Lanka to build even stronger
economies. Working together, we will succeed and the world will be a better place
for it. Certainly, the work of your country after the tsunami is testimony that this is an
achievable goal.
Thank you very much for your attention.
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